Lenders are also drawing on their experience handling the recent flood of other inquiries into the industry, in an attempt to contain the impact of a royal commission on their businesses.

Given banks have in recent years faced a string of inquiries, a new tax, and tougher laws to hold executives to account, one big four bank source said the mood within the bank was not so much surprise at the latest turn of events, but a desire to deal with the issue.

"Nothing can surprise us anymore," they said.

One issue being considered within banks is how to involve key parts of the bank that would be central to a royal commission, such as the legal and government relations departments, and the chief executive, without disrupting other parts of the bank.

While there are no terms of reference for an inquiry, banks have had members of their own legal teams looking at the issue for some time, and have also signed up external lawyers.

Westpac has retained Allens, ANZ has Ashurst, National Australia Bank has signed up Herbert Smith Freehills and Commonwealth Bank has Clayton Utz.

Bank chief executives were asked about their preparations for a royal commission at parliamentary hearings last month, and in response some referred to the various inquiries into the industry over recent years.

NAB chief Andrew Thorburn, for example, said he believed the bank's "working knowledge" after the recent inquiries meant it would be able to handle inquiries in a "reasonable" period of time.

On Monday, Senator O'Sullivan said his private member's bill for a commission of inquiry could pass through both houses of Parliament this year. The government argues it has already acted to hold banks accountable after a series of scandals in the sector.

Australian Bankers' Association chief executive Anna Bligh said an inquiry into the banks would cost $53 million, and the problems Senator O'Sullivan identified in financial planning and insurance had been "dealt with".

Ms Bligh said a royal commission would slow down work to improve some of the industry's problems, such as dealing with the conflicted pay structures of staff, or moves to improve accountability.

"Banks have been subject to some 20 inquiries, including three parliamentary inquiries that are currently active. But if they decide that there should be another one, banks of course will co-operate, as they have with every other review by regulators or parliamentary inquiries," she said.